Expensive

Unless one is buying Quantum Stocks with several times (read 3 – 10 times) higher intrinsic worth which are unlikely to see much downside or value stocks (I know growth and 40 year forward survival expectation is part of value equation too). I would begin to dump or have already started selling all holdings with high-expectations for future because let me tell you with an example.

Example:

I agree that future prospects are bright for a company like Jubilant Foodworks growing at a nice clip. However, stock price is slave of earnings and we (or at least I do not feel the need due to abundance of alternatives, rather over abundance of stocks on BSE) need not pay premium just because an organisation is expected to grow @10-15% for next 30 years and a stock ranks as a single decision idea.

Why:

Because stock prices should be ultimately discounted value of their future cash flows, I feel certain stocks are over valued as they will *never* (say next 15 years) earn as much as other simple ideas. In reality the stock prices are discounted hopes of future mental expectations. I’ll stick my neck out and and would try to make a prediction:

Jubilant Foodworks although not in comparable business as a Bank but this one at CMP 875 will not ever (say until 2025, trust me that is a very long time in Equity Markets) will not be able to match EPS of Jammu and Kashmir Bank until 2025 (CMP 860, Div Yield 3%). i.e by 2025 (too far a timezone, a lot of things can go wrong) I believe growth rate of J&K Bank would be as good or superior to Jubilant Foodworks and its EPS would be far higher, but market does not feel that way.

I heard a respected stock market investor Ramesh Damani speak about Dabur being fairly valued as part of his portfolio. Personally, God forbid, unless I am struck by blindness or paralysis and unable to pursue the search, why should I buy a 15-20% grower @ 40PE just because its expected to survive my grandchildren’s generation. Too heavy a price to pay for higher certainty. With benefit of hindsight check the returns of Axis Bank vs HDFC Bank between 2000 and 2011.

A handpicked portfolio of choicest small caps should provide far superior returns as they have over past 100 years.

I am all for growth, greed and returns at a faster rate but refuse to ride the 40PE bandwagon.

An Idea

Market leading companies in brand new industries tend to do very well at least for few years or a decade. Stumbled upon GOGO/ Aircell, an innovative company leading a sector, experiencing exponential growth. Check it out www.aircell.com. Provides wifi, smartphones on Aircrafts.

Was granted exclusive air-to-ground broadband frequency license in FCC auction in 2006. Buffett’s Netjets is also one of their clients. Not listed on stock market. Hey, if you are a PE player you can always try.

Thought-provoking article, Amit..Fancy stocks are expensive and proved to be expensive to investor too…So Axis 40+ times and HDFC Bank 10+ times in 10 years (calculated purely on price using google tool, may be incorrect too)..Clearly a quantum of difference..

Dhandho is great book by Pabrai. A good stock is one which makes your heart race, and you already you will win.

I am buying certain stocks which will take me about 2-3 years to accumulate, volumes are extremely low, almost 100% daily trading volume in buying is done by me. I hope I will be able to share them one day.

There is no need to buy and keep a stock for 20 years as an active investor. Dislocations happen too frequently too often.

Ramdeo Agarwal says a good stock is one whose net profits of next five years will equal to today's market cap. That is a good guideline to get rich.

Concepts that bewilders me are “free money”, yet another one is “core portfolio stock” vs “peripheral stock”. Where is free money and what is non core stock ? Everything is core, all is hard earned money.

It was in my watchlist earlier. Did some reading on it. It ranks same as other Specialty Chemical companies like Vinati Organics etc. Less than 10 major producers in world, however one needs to keep tabs on over capacity in industry because technology is the secret here but can be over produced in enthusiasm, Michelin and Yokohama are also setting up in India. Major competitors are Solutin, Laxness, NCC. All in all a hard result to predict on yearly basis but should do well over long term.

These type of companies are not easily understood hence stay cheap. 20 bagger already from 2003 ! But cheap stocks that stay forever cheap can also make one rich !

Hi Amit,Yes I too think it may stay cheap till a big investor shows interest in the counter. The major competitor I think would be Solutia which is likely to target the Indian market after the expansion of its Malasyian plant.This expansion will double current capacity, making Solutia's Kuantan site in Malasyia the largest insoluble sulfur manufacturing facility in the world.Solutia also points oriental carbon as a major competitor in its AR.

What encourages me is as per oriental carbons AR the capacity being set up in Mundra SEZ is already sold out and management is optimistic about the future demand.Also the recognition of a bigger global player as a major competitor to there business is also very much encouraging!!!

Even TTK prestige & VIP are falling under overvalued category. May be they will grow@20-25%in next 10yrs.But if we buy them @ 40PE on future growth is real pathetic. But people dont listen these words. They will keep on chase these kind of stocks.And i m n't against the consumption story in india.its very much intact but there r many other stock ideas are available in today's market. By being a contrarian investor is always helpful.What do you say,

Ed Yardeni quoted

“Nobody believed in the model when it said thase stocks were 100 percent overvalued and nobody believes in it now. Valuation is like beauty — it's in the eye of the beholder.”

What's your stand on Puneet Resins for Longterm.. please share if you had investigated any new information or updates on this counter..Seems to be a good long term bet as of now. Would be glad to hear from you.

I hold Puneet Resins, compounds are very precious like specialty chemicals. Short term quarterly results can be volatile due to automobile industry linkage but bullish on long term. Still a small company so cant bet heavily.

Did a bit more digging into the Rishiroop Group. There are criss cross structure of holding companies and relationships with leading vendors. One of the deepest relationship was with Chemcentral which was later acquired by Univar. Univar is circa 9 Billion $ organisation and leading distributor present in over 100 countries, they have most mouth watering joint venture with Rishichem Distributors (Privately Held company). Rishiroop group also holds 100% in RishiChem Mideast Ltd. Univar being present all over world also sources raw materials from Puneet Resins and mentions Lanxess, Solvay, Dow Corning and Puneet Resins in same breath.

Puneet Resins has exclusive tieup with Excel Polymers for elastomeric compounding. To get an idea of its applications, please see the Hexpol (new acquirer of Excel Polymers) trade page. New business of Hexpol may or may not flow to Puneet Resins but existing compounding business is likely to continue. Puneet will continue to build and expand capacity based on proprietary compounds of Excel Polymers.

Hexpol acknowledges and intends to continue the relationship with Rishiroop Group. Less than 6% of Hexpol's revenue originate from Asia which need to be a focus for growth.

Conslusion: Returns depend on groups focus and intentions for listed entities. Market is very fragmented in this space, a bigger distribution network and a number of group companies may prove to be a blessing in disguise. Products find applications across the spectrum of industrial sector. People get frightened at the first sight of complex group structure as SEC did with Buffett's structure before he founded Berkshire. Holding structure is internal to and hard to predict how it will change, just flow with the promoter holding.

A friend of mine and I did some more tyre kicking into Intec. They are trying to expand very aggressively into Pune through 8.5% loan rate for machinery. This may impact short term profitability and also may result in equity dilution. small and micro enterprise segment is growing very rapidly as its overlooked by major banks.

AGRE DEVELOPERS:

I'll try looking again. Ansh told me to look at it few months back and I did not find anything in it then.

Amit,How do you read the Photoquip Q1 results? (profits have gone up from other income, don't know what this is). It appears the story looks intact, although it could take time to give returns to shareholders. Any red flags or concerns?

PQIL's Quarter on Quarter results may be volatile. I expect 20% plus growth for atleast 3-4 years based simply on iPad/iPhone interface offtake.

If dye sub printing venture works so much the better. For me a good stock is one that has potential to double triple in year or two. But atleast on billionaire has to love the stock. Whenever that happens we'll make 10-20 times. Maybe one day you'll buy all the outstanding stock MG 🙂

But if you are expecting a rich man to bet 10 Crores on this company then he needs dividend, only that is concern for the trigger.

can u please tell me what is this ipad/iphone interface to do with photoquip…the co is in lightings…how can it change things for the company..and how big can be the market…

please can u tell me the total revenues of elincrome ,the parent co….we can analyse the potential of the outsourcing revenue then….what is the turnover or the foreign co,what its share or outsourcing,from where it sources etc etc…..

I don't know Elinchrom's turnover, its private. I am not recommending a buy or sell on Photoquip, its simply my opinion. I can end up make a Zero bagger in Photoquip and 50 bagger in Puneet Resins, results may not work out the way we hope.

Applicable Quote:

The best assurance of continued growth, and high profit margins, comes back to this: the company should have a special niche in the marketplace, so that sales don't depend on offering a commodity item at a lower price than the competition's. It should, to a degree, dominate that niche. The best company in a marginal industry is worth more than the third-best company in a major industry. I'd rather own the shares of Hokuto, the leading mushroom grower in Japan, than of Mitsubishi Motor or Subaru. – Ralph Wanger

There is no studio lighting company in the world which has this interface. Most of the poeple use remote control to manage lights. When Photogs shoot they need to adjust light from 10-20 metres away in corporate, fashion photography. Its better to have an application in iPhone which does it. Competition will eventually follow in 3-4 years but they are ahead of the game. Top three companies are Broncolor, Profoto and Elinchrom. Not only top two but other 10 behind it also don't have this interface yet.

i do not see a interface with ipod/ipad as a major issue for a buyer to buy elinchrome than other..a person does not buy ipod/iphaone due to its interface with elinchrome…hence growth of ipod/phone does not guarantee sale of elinchrome products…

a person look for brand in that segment will go for that brand rather than how to operate…remote control is equally fine..as not all photographers will have iphone…

yes amit i agree that smartphones are there to sell….but the other products which have app on iphones will sell on the strength of their own and rather than strength of smartph

the best thing i liked about photoquip was that turnover in increasing without increase in much gross block..and equity dilution….showing revenue increases with same infrastructure…

its net worth doubled every 4-5 yrs…so in next 5 years it can again double….revenue could increase above 120 cr…so a market cap at 20 cr still is very cheap…it has to move up as long as management is true in financial disclosure and ethics and the products

i am lookinh at a co called weizmann forex…looked exciting..first of all i look for businesses /companies whre in future there u can find people/investors lining in queue to buy it due to its niche area,irreplacable position over a medium term….etc etc

weizmann is at 80 cr market cap….with most of psu banks and about 30000 sales offices,,,where will u find a co with such a low market cap with such potential….lkp merchant was bought by thomas cook at 200 cr..most it was forex exchange…then..lkp profits was less than 3-4 cr..but i dont see profits as they are managed by them…look at business turnover branches etc etc…weizmann is money transfer business..it has more branches and business turnover than lkp aat that time..also prfits ebitda is 18 cr…

its a business where any financial powerhouse will love to come….many will look to buy it…it has already tie ups with all major banks..very hard to have that franchisee and become a principal agent of western union alll over again…rather that that…anyone will be willing to buy it so very high prices…so this 80 cr market cap will surely become a good investment…just buying in small qty…please share ur comments on it…

But who would buy a similar priced product if they need to spend 300 $ worth for transmitter and receiver. The price of remote controls for studio lighting is outrageous as there are only 3-4 companies making them. One can get a laptop for the price, pretty decent one at that

Dear AmitGreat posts! I am a new investor and stumbled upon your blog.You are doing really nice thing.I am charmed by your stock analysis especially for cravatex.Is it a good level(CMP=366) to enter cravatex now? Pls provide the entry level for this stock.thank you

Hi Sir,Gone through the post.. Studied the result of techno fab,Which looks good with almost 12-13% operating margin & order book of almost 900 Cr. Sir.. Do you think Techno fab as part of any ones model portfolio at current price..

Time to make plenty of upside in a stock is to buy when its a no brainer, if one has to ask or in doubt then it isn't. I can ony say that I am invested and haven't sold any since Rs 100 levels (bonus adjusted) – date of writing on this blog. It was discovered by Saroj Kumar Patni before me.

I think you can make lots of money in a few year potentially in Technofab, there isn't much to lose. But it can enter prolonged period of flatness thus losing opportunity cost. Stock market cant predict future nor can I for technofab, but ready to pay 50 PE multiple if through PF, Bank Account, Sale of House, Building, Factory if growth is forseeable. You'll have to dig more deep to be able to predict its future, then you can make lots of money.

so which stocks look to u to be multibaggers where u see 30% compounding growth over next 5-10 years….even though growth seems there, they are not cheap now…as markets are yet to fall broadly…however keeping an eye on them is useful…but in a bear market …even i buy across without as a no brainer,i still get huge returns…

I feel Axis Bank, Yes Bank, Shriram, Intec, Puneet Resins can easily do 25%+ in growth, stock prices may even do more than that. Photoquip, Cravatex and Globus can also do similar but there is no point marrying anything for 10 years. The moment you find another Money Matters just sell as much as others and load it up. Sometimes the undervaluation is so steep that average growth can return phenomenal amount. I think over 1000 stocks on BSE can do better than 15% CAGR therefore only a very bad stock picker should get scorecard below that.

Hello Amit,What do you think of Aarvee Denims & Export. It does 25%+ growth, has a sound management, offers dividend and CRISIL has awarded it 5/5 in valuation grade and 3/5 in fundamental grade. Only negative i can feel is the sector which is not favoured by investors.Appreciate your feedback.Regards,

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Amit Arora

B.Com(Hons) Gold Medalist - Delhi University, MBA.

Served United Nations between 2001-2006 in Europe.

Since 2007 consultant for Inland Revenue, Ministry of Economic Development, Ministry of Social Development, Ministry of Justice, Ministry of Business Innovation and Employment (NZ Govt. Organisations).